High Volatility and Slippage
During the Big important Economic fundamental events such as release of Election Results, GDP rate changes, Financial Budget of the Country. We can expect a High Volatility and Slippage on most of the Currency pairs. Please beware!
Don’t believe your STOP LOSS AND PENDING ORDERS!
Always keep the stop loss on your trades, But Never take high lot trades at this time.
During this important news announcements, There will be a big jumping movement in the markets without moving the price continuously.
Especially, you can expect a big slippage (gap) in the market.
The gap caused due to an imbalance of demand and supply in the forex market.
During this time, Due to lack of liquidity, the market will keep jumping from one price to another price instead of moving continuously.
This makes the market, not to hit your stop loss or pending orders. Instead, your stop loss or pending orders will be executed at different prices.
If your stop-loss doesn’t execute on your given stop-loss price, you will lose more money than your stop-loss price.
Example: If you place a sell order on crude oil at the price 37 with stop loss at 40 and if the market jumps immediately from 37 to 45 due to lack of liquidity. You will loss 8$(45 – 37) instead of losing 3$ (your default stop loss).
It means, wherever market price landed after jumping will be your stop-loss price.
The above example,
Entry = 37
Stop loss = 40
Take Profit = 30
Crude oil market price jumps from 37 to 45 (not hit you stop loss 40, instead it jumps directly from 37 to 45)
Result = 8$ lost (instead of my 3$ stop-loss price (37 – 40 = 3))
You loss more than your stop-loss price.
You may feel worried and cheated due to this.
Pending order issues
Similar to the stop loss example.
If you place your pending order at 50, and if the market jumps from 48 to 60 within a fraction of seconds, Your pending order may not be executed or it will be executed at the market landing price 60 instead of your original pending order price 50.
It sounds very bad, right?
This puts your trading account into a high risk within a short time.
Please don’t place any high lot pending orders during this time.
NOTE: Forex brokers don’t support you on this issue. Because it is normal to see this kind of Volatility at this unusual time due to lack of liquidity.
The Forex brokers and their liquidity providers don’t have control over it.
This is the reason, Brokers reduce leverage on your trading accounts. So, you can’t able to place high lots on your trading account.
If you look out the history of retail forex trading, most of the forex brokers and banks got bankrupt during the crazy unusual movements in the market.
As a trader, you must have to be aware of all those risks during major events like this.
Solution for managing the trades
📍Don’t place high lots during this time.
📍Don’t place pending orders.
📍Don’t open too many trades.
📍Always use the stop loss.
📍Use Trailing Stop to chase the profits
Hope, you have learnt something useful now to save your money!
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